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    After China Hongqiao was shorted for two years: the performance was flat but frequently repurchased. Is it hidden?

    2019-04-15 07:01:57

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    The aluminum giant China Hongqiao (1378.HK) has seen high-profile repurchase since 2019.

    According to the statistics of public data, as of April 10, 2019, the company has repurchased about 56,465,500 shares this year, involving an amount of nearly 280 million Hong Kong dollars.

     After China Hongqiao was shorted for two years: the performance was flat but it was frequently repurchased. Is it hidden?

    Further analysis can be found that not only this year, the company's repurchase in 2018 is also a big deal. A total of 98.687 million shares were repurchased throughout the year, costing nearly HK$600 million.

    However, looking back at the company’s previously disclosed 2018 performance report is not very eye-catching. China Hongqiao achieved revenue of 90.195 billion yuan, a year-on-year decrease of 7.9%. The net profit attributable to the mother was 5.407 billion, a year-on-year increase of 5.4%.

    If you return to the earlier April 2017, the company has also encountered short-selling agency EmersonAnalytics issued a short report, questioning its extremely low power costs, far higher than peer profits and unreasonable related party transactions. Affected by the report, the company's share price experienced a significant decline at that time.

     After China Hongqiao was shorted for two years: the performance was flat but it was frequently repurchased. Is it hidden?

    In general, listed companies frequently repurchase their own stocks, either optimistic about future development, or based on the consideration of maintaining stock price stability or for equity incentives. Which category does China Hongqiao belong to?

    Close some production lines:Aluminum alloy products decline, alumina increases

    China Hongqiao was listed on the Hong Kong Stock Exchange in 2011 and is mainly engaged in the manufacture of aluminum products. After years of development, the company's products cover the entire industry chain, including bauxite mining, alumina, aluminum products, aluminum products deep processing and sales.

    According to the revenue structure disclosed in the company's 2018 performance report, aluminum alloy products, alumina and aluminum alloy processed products achieved revenues of 71.516 billion, 11.45 billion and 7.135 billion, respectively, accounting for 79.3%, 12.2% and 7.9%.

     After China Hongqiao was shorted for two years: the performance was flat but it was frequently repurchased. Is it hidden?

    It is worth mentioning that from the perspective of revenue changes, the company's aluminum alloy revenues decreased, while the proportion of alumina products increased significantly. One of the more important reasons is that the company shut down some of the aluminum alloy production lines, which has led to an increase in the sales of alumina products. At the same time, the company also adjusted its sales strategy and increased the development of the alumina market.

    From the specific sales scale of the company's products in 2018, aluminum alloy products sold about 5.865 million tons, aluminum alloy processed products sold 493,000 tons, and alumina products sold about 4.09 million tons.

    Declining revenue, slightly increased profits

    Looking at China Hongqiao's 2018 performance report, it can be seen that the annual revenue fell by 7.9%. The company explained that the company shut down some aluminum alloy production lines in response to the supply side reform of the industry, resulting in aluminum during the year. The output and sales of alloy products decreased year-on-year.

    However, the Company has achieved a net increase in net profit, gross profit margin and net profit margin, which benefited from the decrease in costs and other expenses (including impairment of property, plant and equipment).

    However, if you look at the extended period, you will see another situation.

    As shown in the chart below, the company's revenue has jumped from 360.86 billion in 2014 to over 90 billion in 2018 in the past five years, but its net profit has not increased significantly during this period, even after reaching a high point in 2016. Some decline.

    As for the gross profit margin and the net interest rate level, it is generally in the downtrend channel. Among them, in the case of the overall increase in the price of aluminum products in 2017, the main reason for the sharp decline in gross profit margin and net profit margin was the increase in the prices of raw materials such as coal, the shutdown of some production capacity and the acquisition of 5.471 billion assets. Prepared for.

     After China Hongqiao was shorted for two years: the performance was flat but it was frequently repurchased. Is it hidden?

    From an operational point of view, China Hongqiao's inventory turnover days and accounts receivable turnover days in 2018 increased from 73 days and 5 days in the previous year to 86 days and 18 days respectively.

    For the increase in inventory turnover days, the company's explanation is that the increase in raw material reserves led to an increase in inventory balance. The reason for the increase in accounts receivable turnover days is that the company has given downstream customers a credit period of a certain period. In addition, the increase in accounts receivable due to the growth in sales of aluminum alloy processed products is also an important reason.

    Aluminum prices stabilized and demand improved?

    If the financial figures are a summary of the company's past operations, then analyzing the supply and demand situation of the industry and the price trend of the products may reveal the past and future of the cyclical stocks such as China Hongqiao.

    First look at the trend of the company's aluminum prices. As can be seen from the March aluminum futures chart, the overall situation is wide fluctuations in 2018. However, since the fourth quarter, aluminum prices have continued to decline and hit a full-year low.

    Although the price of aluminum has rebounded since 2019, it is still at a lower level since 2018.

     After China Hongqiao was shorted for two years: the performance was flat but it was frequently repurchased. Is it hidden?

    The decline in aluminum prices is partly a reflection of the weak performance on the demand side. According to the company's annual report, which quoted third-party research firm Antaike, China's primary aluminum consumption in 2018 was about 37.13 million tons, up 4.7% year-on-year, down from last year's 8.1, affected by China's economic slowdown and trade frictions. % growth rate. The global situation is similar. Last year's total consumption was 66.83 million tons, an increase of about 3.7% year-on-year, and the growth rate dropped by 2 percentage points.

    The fact that demand is sluggish and product prices have fallen is also reflected in the 2018 performance report of Chinalco (2600.HK), another aluminum giant in China. As can be seen from the table below, Chinalco's revenue in 2018 also declined, and its net profit attributable to international financial reporting fell to 746 million, a year-on-year decrease of 47.20%. Alcoa's explanation for this is the reduction in the price of primary aluminum and the rise in raw material prices.

     After China Hongqiao was shorted for two years: the performance was flat but it was frequently repurchased. Is it hidden?

    However, the good news is that the supply of the industry is gradually shrinking due to factors such as supply-side reform. Also from the data of Antaike, domestic primary aluminum production in 2018 showed the first negative growth in the past decade. China's primary aluminum production was 36.59 million tons, down about 0.2% year-on-year. Similarly, global primary aluminum production was 64.2 million tons, and the growth rate fell to 0.5%.

    According to the statistics of Shanghai Nonferrous Network, since 2019, the industry's production capacity has continued to shrink. The data shows that the domestic electrolytic aluminum output in the first quarter of this year was 8.633 million tons, down 1.2% year-on-year.

    It is worth mentioning that the industry demand side is also beginning to show signs of improvement. In March 2019, the actual consumption of domestic electrolytic aluminum was 3.057 million tons, an increase of 4.9% year-on-year, ending the negative growth in the first two months.

    Has the haze that suffered a short-selling raid two years ago completely disappeared over time? As a typical cyclical industry, are there any unrecognized changes in the aluminum industry?

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    Editor in charge: Robot RF13015

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